What is the Securities and Exchange Commission?

Every financial activity has to be regulated or managed by a central authority due to possible frauds and losses for an individual. Financial transactions are executed in the largest form in the securities market. The securities market includes numerous asset classes such as equities, debt, currencies, commodities, etc., and offers thousands of investment instruments within every asset class.

With such a wide category of instruments offering profit-making opportunities, investors trade them in massive volumes. Every country has established a regulatory body to manage the country’s securities market. In India, it is the Securities and Exchange Board of India, and in the US, it is the Securities and Exchange Commission(SEC).

What is the Securities and Exchange Commission (SEC)?

The Securities and Exchange Commission (SEC) is the nodal department of the United States that regulates and manages the securities market in the US. Similar to SEBI, the SEC is also an independent central regulatory agency that protects the rights of investors and ensures that the securities market functions within the specified guidelines and framework. The Securities and Exchange Commission (SEC) was established in the year 1934 by Congress (the then ruling party) as the first federal regulator of the US securities market.

The main aim of the SEC is to avoid any fraudulent activities in the securities market by promoting full and transparent disclosure. The Securities and Exchange Commission (SEC) also regulates and manages corporate acquisitions in the United States. Furthermore, the approval registration statements are also given by the Securities and Exchange Commission (SEC) to various bookrunners among underwriting firms.

In India, all the companies that list through IPOs have to be approved by SEBI; the same is the case in the United States. In the US, if a company wants to go public (sell its shares to the public for the first time), its draft prospectus of the issue has to be approved by the Securities and Exchange Commission (SEC). Furthermore, all financial advisory firms, brokers, dealers, asset management firms, and portfolio managers are legally liable to register with the Securities and Exchange Commission (SEC).

How does the Securities and Exchange Commission Works?

The Securities and Exchange Commission (SEC) works on the principle of using its regulator power to oversee the securities market, protect investors and manage organizational activities between two parties, such as mergers or acquisitions. It also uses the vested regulatory power to manage the intermediates such as advisory firms, brokers, dealers, etc., which indirectly affect the investors.

The Securities and Exchange Commission (SEC) has put in place securities guidelines and frameworks to ensure smooth sharing of market-related information, protection against fraud, and disclosure of information. The Securities and Exchange Commission (SEC) provides investors with access to financial reports, red herring prospectus, annual general meetings, registration statements, and other factors that may affect the outcome of investments. The Securities and Exchange Commission (SEC) provides this access through its analysis, retrieval database, and electronic data-gathering platform known as EDGAR.

The Securities and Exchange Commission (SEC) is headed by five commissioners who oversee the management. The President of the United States appoints these commissioners and makes one of them the chair of the Securities and Exchange Commission (SEC). Every commissioner’s term is set at five years but may be extended by an additional 18 months if no replacement is found after five years. The current chair of the Securities and Exchange Commission (SEC) is Gary Gensler.

What are the Securities and Exchange Commission’s (SEC) founding principles?

The Securities and Exchange Commission (SEC) is responsible for interpreting and enforcing the federal laws that are established to govern the US securities market. These are based on the following two principles:

Investors have the right to access all the information regarding security before they make an investment decision. Therefore, companies that are offering their shares to public investors are legally bound to disclose accurate and comprehensive information including the company’s business, the type of securities, and the risk involved in the long term.

People, institutions, companies, etc., involved in the sale and purchase of securities must protect the interests of investors and treat them fairly with honest information. The Securities and Exchange Commission (SEC) oversees these key players and ensures that they adhere to operations without malpractice.

The organizational structure of the Securities and Exchange Commission (SEC)

The Securities and Exchange Commission (SEC) comprises five divisions and 24 offices to develop new securities rules, and market laws and provide oversight to financial and investment institutions. The organizational structure of the Securities and Exchange Commission (SEC) is listed below:

• Division of Corporate Finance: This division of the Securities and Exchange Commission (SEC) ensures that investors get fair and material information related to a company’s financial performance and other factors. This allows the investors transparent information to make informed financial decisions.
• Division of Enforcement: The division is responsible for overseeing and enforcing the regulations and rules set by the Securities and Exchange Commission (SEC). The actions are undertaken by investigating cases, redressing investor complaints, and prosecuting civil suits and administrative proceedings.
• Division of Investment Management: This division of the Securities and Exchange Commission (SEC) regulates and manages investment companies, federally registered investment advisors, and insurance products. The division executes the regulations through set rules that are clearly defined in its rule book.
• Division of Economic and Risk Analysis: The Economic and Risk Analysis division of the Securities and Exchange Commission (SEC) is responsible for integrating economics and data analysis. This ensures the smooth functioning of the securities market and that the market factors do not negatively affect the market trend.
• Division of Trading and Markets: This division of the Securities and Exchange Commission (SEC) creates and manages various standards set by the agency to ensure the securities markets' smooth, orderly, and efficient functioning. The SEC may penalize entities that fail to uplift the securities market from their operations.

Final Words

The Securities and Exchange Commission USA (SEC) keeps the securities market in the US in check. If the market does not run smoothly, it can result in immense losses for the traders and investors. Furthermore, the Securities and Exchange Commission (SEC)’s the triple mandate of maintaining orderly markets, investor protection, and facilitation of capital formation makes it one of the most important agencies in the US.

The advent of technology and the resulting possibility of fraud have increased the workload of the Securities and Exchange Commission (SEC). However, with the power vested into the Securities and Exchange Commission (SEC) by the US President, it is managing the market with the highest level of regulation.